Lenders withdraw a third of all mortgages

A third of all mortgage products have now been withdrawn by lenders since the government made its “mini budget” announcement, as the financial markets continue to react to the government’s plans for borrowing-funded tax cuts aimed at the wealthy.

According to the latest data from personal finance information provider Moneyfacts.co.uk, the number of mortgage products available to buyers of new homes had reduced by exactly 1,300 as of first thing this morning, equivalent to a culling of 33% of all available mortgage products in three working days.

Moneyfacts said that there were now just 2,661 products available, down from 3,961 on Friday morning prior to chancellor Kwasi Kwarteng standing up to deliver his Growth Plan in the House of Commons.

The reduction in the availability of mortgages, alongside predicted hikes in mortgage rates, is already leading to concerns over a potential drop in house prices, despite the stimulus to the market from Stamp Duty cuts in the Growth Plan itself.

Shares in housebuilders closed sharply down yesterday, with most of the sector having lost more than 10% of its value since Friday. Shares continuing to fall on opening this morning. Shares in Taylor Wimpey, the hardest hit, closed down 6.6% yesterday, and are currently trading around 18% below their Friday morning opening price.

The hit to housebuilders comes in anticipation of more aggressive interest rate rises by the Bank of England in the coming months in response to the measures outlined by the chancellor in the his Growth Plan on Friday, which has also led to the withdrawal of mortgages.

The drop in the number of mortgage products available continued yesterday after beginning in earnest on Friday, with around 80 products being pulled by Monday morning. However, the trend accelerated on Monday, with 365 products pulled from a range of lenders including some from the UK’s largest lender, the Halifax, by yesterday morning.

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However, a further 935 products have been pulled overnight, according to Moneyfacts – the highest figure ever recorded by the firm, more than double the previous record of 462 products recalled on April 1 at the start of the Covid lockdown in April 2020.

Other lenders to have pulled products include Virgin Money, Skipton BS, Post Office Money, Vida Homeloans and various Bank of Ireland brands, all of which completely withdrew their product range for new customers.

Housebuilders are thought to be optimistic that the withdrawals are temporary and mortgage lenders are likely to bring products back to the market in the coming days, however it is unclear what rate product deals will return at, and whether high loan to value products will remain available.

Housing market analyst Neal Hudson, founder of consultant Residential Analysts, said the scale of rises in rates, with Bank of England base rate now predicted to hit between five and six per cent next year, was likely to have a “disastrous” effect on the housing market and presage a “correction” in house prices.

He told Housing Today that recent market turmoil following the chancellor’s growth plan meant the housing market was “accelerating towards the worst case scenario” of a “collapse in housing market activity” followed by strong downward pressure on prices.

Hudson said falls in prices were still not guaranteed, but said: “With mortgage rates at six per cent you’re pushing affordability to level seen prior to the crashes in the late 80s and 2007, so there is the potential to see double digit price falls.”

“To get actual price falls in the market you need forced sellers, but given the cost of living crisis and the likely increase in mortgage rates you can see a number of people needing to sell their homes at distressed prices.”

He said the “sensible” Stamp Duty reforms unveiled in the Growth Plan on Friday, while providing a welcome support to the market, would be “nowhere near enough to offset this”.

Rachel Springall, finance expert at Moneyfacts said many lenders had said their decision to withdraw products was “a temporary measure, amid the uncertainty over interest rates” and advised potential borrowers to “keep calm”.

However, she said: “First time buyers may now be struggling to find a property they can afford.”